LONDON (Bywire News) - Cardano is the third generation cryptocurrency launched by one of the superstars of the crypto world. Since October last year, its value has rocketed by 1,500% with experts predicting much more to come. Billionaire investors are showing interest and it has surged into the top five cryptocurrencies in the world.
So, what’s all the fuss?
Cardano was launched in 2017 by one of the co-founders of Ethereum, Charles Hodgkinson. However, from the outset, it tried to differentiate its self from those which had gone before. It bills itself as the first third-generation cryptocurrency, solving the problems of scaling, security and smart contracts.
Bitcoin was the first generation crypto. It solved the problem of how to make a digital currency amd scale it, but Bitcoin suffered from long-term scalability issues. The second was Ethereum, which brought in the concept of smart contracts. It improved scalability but not enough to create a global payments system.
As the first in the third generation, Cardano sets out to solve several specific problems: Scalability, interoperability, legal issue, security, bandwidth and sustainability.
To become a global payments system requires multiple transactions per second. Cardano does this by using proof of stake rather than proof of work.
Underproof of work everyone mines blocks. However, this is slow and takes up a huge amount of energy. In proof of stake, the network elects a few nodes which will make the next block. They will be slot leaders. Time is divided into epics which comprises a number of slots, a slot period of time during which the next block will be made. Slot leaders listen for new transactions, verify them and put them in a block.
Cardano can scale by increasing the number of slots per epic and running multiple epics in parallel.
Blockchains are stored in the p2p network. Each node receives a copy of each transaction. But, as transaction sizes increase, each node needs a huge amount of bandwidth to download all the transactions. This is not scalable. Instead, Cardano splits the network into sub-network called a recursive internetwork architecture (RINA) each network communicates with the other and can help if needed.
Many cryptos out there but they don’t work together. In the future, we will have multiple currencies existing side by side with their own rules. They do not talk to each other. You can’t change from Ether into Bitcoin without an intermediary. Cardano wants to be the internet of blockchains. It’s a blockchain that understands what happens in others.
Governments and banks shy away from transactions in the crypto world because they do not have metadata about the transaction. They want to know who made the transaction. However, this has privacy issues. Cardano allows people to attach metadata if they want, which makes their cryptocurrency play better with the banks.
A lot of people want to build around crypto. They launch an ICO. The team ends up with the capital to start their company, but if it runs out, what do they do? Raising money once isn’t sustainable. Cardano creates a treasury which receives a small percentage of every transaction made. The Treasury isn’t owned by anyone but is a smart contract which can release some of the funds to developers who want to improve the Cardano protocol.
Developers submit a proposal to the community saying what they want to change and how much they need. The community votes on the ideas. The treasury takes the most popular proposals and gives them money to make their improvements.
This, in short, is why there is so much buzz about Cardano. It looks to be a system which is more scalable, sustainable and bank-friendly than those which has gone before.
However, it faces competition from other would-be third generations. Critics fear the proof of stake model could lead to a plutocracy as a few nodes take control of the network. It is still early days, but the groundwork is solid. It has a great pedigree and has a compelling long term vision for the future of cryptocurrencies. The potential is there, and that is reflected by its valuation. Everything depends on the execution.
(Written by Tom Cropper, edited by Klaudia Fior)